Examining bank lending to high-growth firms

By Tommaso Bighelli, Sudipto Karmakar, Javier Miranda and Sophie Piton.^{footnote [1]}

Traditional bank lending may be less well suited to high-growth firms.

Many high-growth firms possess characteristics that can make traditional bank lending more difficult to obtain or less appropriate than for other businesses. High-growth businesses often derive much of their value from intangible assets such as intellectual property, software, data and organisational capital. These assets can be difficult to pledge as collateral, reducing banks’ ability to recover losses if a borrower defaults. As a result, banks may be less willing to extend large long-term loans against them.^{footnote [2]}

Uncertainty is also a challenge, as high-growth firms frequently operate in innovative markets where future revenues can be volatile and difficult to predict.

They may prioritise expansion over immediate profitability and banks may not have the necessary knowhow to evaluate projects with few collateralisable assets and significant uncertainty, Hall and Lerner (2010).

These characteristics can also affect the type of finance that high-growth firms demand.

Businesses pursuing rapid expansion may require patient capital capable of absorbing losses while investments mature. As highlighted in the Financial Stability Report – July 2025, SMEs looking to ‘scale-up’ are likely to demand forms of finance such as seed funding, venture capital and private equity, which are more specialised than bank debt (Chart 1).

Chart 1: The fastest growing SMEs typically use more sophisticated sources of finance

Footnotes

• Notes: This is an illustrative chart highlighting UK SMEs’ use of different financial services. This chart, while based on surveys and data as far as possible, is illustrative and aims to give the reader a sense of the importance of different financial services as businesses grow. Where data is drawn from the Bank of England Finance and Investment Decisions Survey, the sum of SMEs reporting that they have currently or previously used a financial service is shown. Covid loans are not included in the bank loan series.
• Sources: Bank of England Finance and Investment Decisions Survey 2023, BVA BRDC SME Finance Monitor and Bank staff estimates.

This does not imply that banks play an unimportant role; they remain a major source of external finance for many growing firms.

Bank lending can be particularly valuable once businesses have established revenues, accumulated assets, or require working capital and shorter-term financing. It is just that some of the features associated with high growth can make traditional lending models less able to meet all financing needs.

We use micro data to examine whether these characteristics are important in practice.

In particular, is there evidence to show that sectors with a greater concentration of high-growth firms make less use of traditional bank credit and greater use of alternative sources of finance? The analysis draws on a rich combination of loan-level and sectoral data. Our core data set comprises monthly financial account information for UK SMEs reported to the Bank of England by Experian under the Commercial Credit Data Sharing (CCDS) framework. CCDS provides detailed information on current accounts and lending relationships reported by major UK banks and selected non-bank lenders, offering a unique view of credit conditions across the SME sector.^{footnote [3]}

To capture the broader entrepreneurial environment, we combine these data with sector‑level indicators of high-growth SME concentration derived from the ONS Business Structure Database (ONS-BSD). We further complement this with granular information on private equity and venture capital activity from PitchBook, allowing us to link credit conditions to patterns of firm dynamism and the availability of external finance.

More productive sectors and those with a higher concentration of high-growth SMEs tend to exhibit a lower share of lending from banks.

This first finding concerns bank lending across sectors. Chart 2 shows that sectors with a higher concentration of high-growth SMEs^{footnote [4]} tend, on average, exhibit a smaller share of bank credit. Nearly half of all high-growth SMEs are concentrated in Information and Communications Technology (ICT), professional and scientific activities, and administrative and support services.

In 2024, however, these sectors accounted for less than 30% of SME lending. A similar negative correlation is obtained when we plot the share of lending against productivity (gross value added (GVA) per hour worked). Sectors with higher productivity tend, on average, to exhibit a smaller share of new bank lending.

In this context, the academic literature highlights that innovative and high-productivity firms often rely heavily on intangible assets that are difficult to collateralise.

As a result, these firms tend to make greater use of equity financing and other forms of non-bank credit.^{footnote [5]} Consistent with this, cross-country studies find that bank credit expansions are typically concentrated in collateral-intensive sectors. (Leogrande et al (2024); and Mueller and Verner (2024)).

Supporting intellectual property (IP)-backed lending is one way of alleviating the collateral constraint faced by high-growth firms.

Reflecting this, the Government announced in July 2026 that the British Business Bank had allocated £500 million within its ENABLE Guarantee programme to support lending to SMEs and scaling firms with significant IP assets. Consistent with this, the FPC’s 2025 Q4 Financial Stability Report highlights and supports ongoing policy work – including a government led working group under the Industrial Strategy – focused on reducing barriers to lending against intellectual property.^{footnote [6]}

Chart 2: Sectors with a higher concentration of high-growth SMEs, on average, exhibit a smaller share of bank credit

Footnotes

• Notes: This chart shows the share of lending, productivity, and concentration of high-growth SMEs by sector in 2024. The size of each dot represents the share of each sector’s GVA.
• Source: Author’s calculation using Experian, and aggregated data from ONS BSD.

Bank credit that reaches high-growth SMEs tends to be smaller, shorter term, and structured differently from lending to other SMEs.

These differences are not confined to the volume of credit but extend to its composition and maturity. Among SMEs with access to bank finance, average outstanding balances are around 40% lower in sectors with a higher concentration of high-growth firms than in other sectors.

The types of credit used also differ markedly. As shown in Chart 3, SMEs in high-growth sectors make greater use of shorter-term facilities, such as hire purchase, and less use of longer-term products such as mortgages.^{footnote [7]} Consistent with this pattern, average loan maturities are substantially shorter, at around 70 months compared with 108 months in other sectors.

Chart 3: SMEs in high-growth sectors rely more heavily on shorter-term instruments

Footnotes

• Note: This chart shows the most common type of lending in sectors with more high-growth SMEs and in the rest of the economy.
• Source: Author’s calculation using Experian, and aggregated data from ONS BSD.

Chart 4: Differences in shorter maturities persist even within the same type of credit

Footnotes

• Note: This chart shows the repayments period (in months) – by credit type – in sectors with more high-growth SMEs and in the rest of the economy.
• Source: Author’s calculation using Experian, and aggregated data from ONS BSD.

Sectors with lower share of bank credit are seeking alternative sources of funding.

High-growth SMEs are more likely than other firms to rely on other sources of finance, such as private equity (PE), venture capital (VC) or venture debt. Consistent with this hypothesis, sectors exhibiting a lower share of bank credit tend to show higher shares of PE investment (Chart 5). This is particularly evident in ICT where assets are often intangible and harder to collateralise.

Despite the UK’s position as a leading venture capital market, concerns remain about the concentration of funding across sectors and deal sizes.

The UK has the world’s third-largest VC market and a growing venture debt sector, as highlighted in the Financial Stability Report – December 2025. Deal activity in the UK totalled £14.4 billion in 2026 H1, with 71% of value now made up of AI deals. However, activity remains concentrated in a relatively small number of very large transactions: almost 60% of deal value came from 18 megadeals. (UK Private Capital Breakdown, Pitchbook (2026)). In addition, the British Business Bank Small Business Equity Tracker (2025) finds that equity investment in small business has recently fallen in both volume and number of deals, and UK VC markets continue to lag the US by roughly 10%, with the gap especially pronounced in research & development intensive sectors.

Whether existing levels of PE and VC funding are sufficient to fully meet the financing demands of the typical high-growth SME and how they complement bank lending are open questions that should be considered in future empirical research.

Chart 5: Sectors exhibiting a lower share of bank credit tend to show higher share of private equity investments

Footnotes

• Note: This chart shows sectoral PE investment shares and sectoral share of bank lending.
• Source: Author’s calculation using Experian, Pitchbook, and aggregated data from ONS BSD.

Taking stock

The patterns documented in this article are consistent with the view that traditional bank lending may not always be the most suitable form of finance for high-growth firms. The findings point to a negative association between sectoral growth characteristics and the availability, structure, and maturity of bank credit. Sectors most closely associated with productivity growth and business dynamism tend to hold a smaller share of bank lending, with firms obtaining smaller loan amounts and facing shorter maturities on average.^{footnote [8]}

The analysis is purely descriptive. It does not seek to establish causality and data limitations (eg, absence of smaller and challenger banks in the sample) imply we are unable to cover the entire high-growth SME financing landscape.

Indeed, the patterns documented here do not imply that banks are misallocating credit, nor that all high-growth SMEs face financing constraints. Financing needs differ across firms, sectors and stages of development, and non‑bank finance may play an important role for some businesses.

We document that sectors exhibiting a lower share of new bank credit tend to show higher levels of private equity investments. Furthermore, VC investments remain concentrated in a relatively small number of large funding rounds and sectors. Future research should assess whether these financing channels are sufficiently broad-based to meet the needs of the wider population of high-growth firms.

Future research should also build understanding on whether these patterns reflect efficient risk allocation, structural features of modern growth sectors, or frictions in credit markets. From a policy perspective, the findings also highlight the importance of monitoring how the financial system supports an increasingly intangible‑intensive economy.

Bank Insights articles do not necessarily represent the views of the Bank of England’s policy committee members.